India – from Emerging to a Submerging economy
On 22nd March 2012 , I wrote this on my blog and also sent the same to leading public figures .I had stated dwelling in detail about how, ‘ Have we oversold the India story’, and this was much before the bad news starting sinking in !
Link to the blog is https://commonmansblog.com/2012/03/ .
This blog clearly mentioned that we must be prepared for bad news in April – May – June Quarter , and we know that, India was downgraded as an economy by the international rating agencies ( S&P & Fitch ) and many Indian banks also faced the brunt , many retailers are gasping for breath ….
This time , I have decided to write about the story of how Indian economy would enter a dark phase if immediate steps are not taken ,and this note is not against anyone but for everyone who wants to see India doing well ! I have tried my best to put data for every statement ( Besides Almighty , everyone should believe in data !).
So now , it is time to peep in the story of how an emerging economy can become a submerging economy .
Let us look at the following data :
|Sector – Industry / company||Financials ( Loans / NPAs)||Source / Remarks|
|Telecom Sector||Rs. 2.00 Lac Crore debt||TOI, 26th September , 2012.|
|Banking Sector||NPAs Rs.1.37 Lac crore as of June’12||Mint , 7th September, 2012|
|Banking Sector||According to RBI’s assessment , a fifth of all re-structured loans go bad . According to RBI, as on March 31, banks had Rs.2.18 Lac worth of restructured loans on its books||Mint, 7th September, 2012|
|Banking Sector||State-run banks NPA crosses Rs.1.23 Lac crore||Mint , 23/ August/ 2012|
|Credit card outstanding||Rs. 22150.00 Crore||As on July/ 21 Ref. ET 14/9/12|
|Indian Government||Total planned borrowing is Rs.5.71 Lac crore for FY 13, of which Rs.2.0 Lac crore would be in the second half of the fiscal by Dec’12||As per Mint dated September 28, 2012|
|Banking Sector||Report by Credit Suisse group AG points that exposure to 10 large Industrial groups constitute 13 % of the entire banking system||Mint, August 21, 2012.|
|Banking Sector||As of 27th July, Indian banks had loans outstanding of Rs.36,600.00 Crore to the mining and quarrying sector, and Rs.93,170.00 Crore to the Telecom sector||Mint, 12th September, 2012.|
|Power Sector||As of March, 2011, the accumulated losses of the State power distribution companies are estimated to be alone Rs.1.90 lac crore which, by now, would have crossed Rs.2.0 lac crore||IBN Live dated 23rd, September, 2012|
|Air India ( NACIL)||Rs.67520.00 crores in loans & dues||NDTV Profit, 8th Feb, 2012|
|Pantaloons ( Kishore Biyani’s )||Rs.3300.00 crore||ET, 14th June 2012 . After selling a portion of its apparel business to Aditya Birla Group. Before the sell-off , the debt of Pantaloon was about a billion dollars|
|Reliance ADA Group||Rs.86700.00 crore FY’12||Business Line August 26th, 2012.|
|GMR||Rs.33600.00 croreFY’12||Business Line August 26th, 2012.|
|JSW||Rs.40,200.00 crore FY’12||Business Line August 26th, 2012.|
|Jaypee||Rs.45,400.00 crore FY’12||Business Line August 26th, 2012.|
|Lanco||Rs.29,300.00 crore FY’12||Business Line August 26th, 2012.|
|Essar Group||Rs.93,800.00 crore FY’12||Business Line August 26th, 2012.|
|Vedanta||Rs.93,500.00 crore FY’12||Business Line August 26th, 2012.|
|Adani Group||Rs.69500.00 crore FY’12||Business Line August 26th, 2012.|
|Videocon||Rs.27,300.00 crore FY’12||Business Line August 26th, 2012.|
|GVK||Rs.21,000.00 crore F’12||Business Line August 26th, 2012.|
|Fortis Healthcare||Rs.6237.00 crore||Business Line August 15th, 2012|
|King Fisher Airlines||Rs.7500.00 crore||The Hindu, July 2nd , 2012|
|Losses of top three oil marketing companies||Rs.40,500.00 crore in April-May-June’2012||Forbes India , Sept 03, 2012|
|Airtel||Rs.60,018 Till Q1, 2012||Business Line , Aug 3, 2012|
The total debt level of ten companies alone (Adani, Essar, GMR, GVK, JSW, Jaypee Group, Lanco, Reliance ADA, Vedanta and Videocon) has jumped 5 times in the past five years to Rs 5,39,500 crore ( Indian Express , September 06, 2012 )
Business Line dated August 26, 2012: Credit Suisse said that the aggregate debt of the ten groups accounts for about 13 per cent of total bank loans and a whopping 98 per cent of the entire banking system net worth.
“Therefore, surprisingly now in terms of concentration risk, Indian banks rank higher than most of their Asian and BRIC counterparts,” it added.
The report said a strong loan growth of Indian banking system in past five years is increasingly being driven by a select few corporate groups.
“Given the high leverage, poor profitability and pressure from lenders, most of these debt heavy groups have initiated plans to divest some of their assets. However, given that most domestic infrastructure developers are already over-geared, demand for these assets may be limited,” Credit Suisse said.
Each of these groups alone account for 1-2 per cent of total banking system loans, the report said, while noting that all banks appear to have high exposure to the same few groups.
“With the economic slowdown and a downturn in these sectors, multiple assets of each group appear stressed and financials of these groups are stretched,” the report said.
Bank’s exposure to real estate sector ( ET dated 22nd August , 2012)
|Bank||Exposure to real estate FY 2011-12 ( Rs. Crore )|
|State Bank of India||144668.38|
|Punjab National Bank||48474.59|
|Bank of Baroda||22157.40|
|Total exposure||Rs. 437285.00 Crore|
Despite an exposure / investment of about Rs.4.37 lac crore from banks ,still five lac houses remain unsold ( ET, 22/ 08/2012 & TOI dated 18/ 09/ 2012. ) . So land became costly as the builders brought them with loans , houses became expensive due to builder cartels and now that houses are not getting sold , all are a part of the downturn ……..no solution is in sight except for NPA’s and its cascading affect later .
Clearly, Indian economic story lacks ‘depth’ but has been built on ‘debt’ and this is a painful bubble waiting to burst …. So a common man must have enough savings to last a few years if without a job !
July 26, 2012 in TOI, it was reported that at least eight cases of FDI in some obscure real estate companies – each worth more than USD 100 Million – from Singapore have come under scanner , with Income tax Overseas unit (ITOU) having investigated them for alleged round tripping . Suspicion was raised when authorities detected huge FDI inflows into some little known real estate firms in India in the form of equity participation . A senior finance ministry official said they suspect these real estate firms to be front entities of some corporate houses and their black money has been routed through Singapore to acquire real estate in the country . All these FDIs coming from Singapore pertain to 2011. India received Rs.1.74 Lac crore worth of FDIs in 2011-12, of which Singapore contributed third highest at Rs.24,700.00 , after Mauritius ( Rs. 46,700.00 crore ) and the U.K ( Rs. 45,000.00 Crore). So , now we can understand why an Indian’s politician’s family have a flat in Singapore and why Indian Government along with a few ‘parties with vested interests’ are pushing for FDI ! Does it also not answer the question why Government opened the real estate sector to FDI in 2005 ? So that money stashed abroad can be brought back in real estate sector, and further money could be made by investing in and increasing the prices by buying land ! Does Lavasa ring a bell in your ear !
In absolute terms, bank’s bad assets have doubled in three years between 2009 and 2012 – from Rs. 68216 crore to Rs.1.37 Lac crore ( Mint 21st August , 2012). Bad assets in coal, iron and steel , mining , construction , textiles and aviation sector have been on the rise . Bankers see stress in telecom and power sector, too. The biggest beneficiaries of loan restructurings are large industrial houses in the manufacturing sector – 8.24 % of loans given to industries have been recast. In the services sector , the comparable figure is 3.99 % , and in agriculture loans , 1.45 %. It is clear that the small borrowers don’t get relief from loan servicing but the large industrial houses have gotton one ( Mint , 21, August ,2012. ). According to the same article , public sector banks have 90 % of the restructured assets , and this in my view clearly states one fact – a strong political – bureaucratic and business houses nexus to make loans and buy private jets and show companies in losses to the investors ! What right do the business houses have to question the Government on profligacy and spending when these business houses have huge debts but have their CEO’s / promoters taking home 10’s of crore in salaries plus stakes in companies and still flying private jets on borrowed money ! We know of the large business house where the debts are more than revenue but the flamboyant chairman / promoter flies on private jets ! Such company’s ( any company that has over Rs. 50 crore external debt ), boards must be restructured by the MCA (Ministry of Corporate Affairs) and independent directors with fixed term and remuneration should be appointed by the Government , so that the loans and shareholders money is not misappropriated by such promoters in the name of expenses and privileges !
Three more developments to be noted to give you a sense of state of affairs in the Indian economy :
|India||S&P rating is BBB (Minus) . Outlook – NegativeFitch rating is BBB (Minus ). Outlook – Negative ( TOI, 26th June, 2012 ).|
|Bharti Airtel||Downgraded by Goldman Sachs and other banks. ET . 10th , August , 2012|
|Retail Sector||Fitch has downgraded the ratings to negative|
Agriculture / Food crises : The US is facing a severe drought , and India has witnessed a bad spell of monsoon this year with erratic and unpredictably low rainfall . When India imports pulses and oilseeds , & the prices of these commodities is set to rise. Stock piles of the biggest crops will decline for a third year as drought parches fields across three continents , raising the food-import costs already forecast by the United Nations to reach a near record $ 1.24 trillion . Combined inventories of corn, wheat, soya beans and rice will drop 1.8% to a four year low before harvests in 2013, the US department of Agriculture ( USDA) estimates . Crops in the US, the biggest exporter, are in the worst condition since 1988, heat waves are battering European crops . Wheat production in Russia , the fourth largest exporter , will fall 20 % this year , and in Australia , output will decline 19 % and, God forbid, another year of bad spell of rain in India will spell disaster for this country . This situation warrants an emergency action ! On 9th August , 2012 on page 7 of ET, I read an appeal to the GOI by All India Starch Manufacturer’s Association regarding the crises due to non-availability of maize in the domestic market. Even if starch manufacturers were ready to buy maize at higher prices, it was not available and adding to it was the monsoon failure ! We are all awaiting a miracle to happen with Wal-Mart et al. But the reality is that these players have not much to contribute. We must not forget that , the supply chain structures in these companies are leaner and they work on shortest inventory, so clearly , these people will not do much for supply chain management . Also, the biggest contribution is stated to be creation of 10 million jobs in India . I wish to ask that these companies have a ROI ( Return on investment ) for each employee and so , clearly , we must see what is the cost that we are going to pay to these MNC chains for them creating 10 million jobs & the Government must come out with a white paper on this ? After all , Wal-Mart is not here in India for charity ! For sure , it would mean we paid will pay them dearly for doing what we could have done 100 times cheaper ! All FDI investments to me appear to be taking the ‘economy in debt’ to ‘sell off’ ( divestment )… We are back to what East India Company did to India but this time , it is not one company, but multiple East India Companies !
Also , a time to look at the sectorial composition of GDP 1950-51 – 2011-12 from CSO data
|1950-51||53.1 %||16.6 %||30.3 %|
|2011-12||13.9 %||27 %||59 %|
In 1950, India had a population of 350 million and now it is 1210 million. During independence, the population dependent on agriculture was 72% and now it is 54 %. But except Madhya Pradesh, where agricultural growth has increased to dramatically , not much is visible in other states .
Infrastructure – Construction firms sector ( Mint , September 11, 2012): for a set of 87 firms with a significant presence in infrastructure , sourced from Capitaline database , these numbers show an increasing difficulty to service debts
For these firms , the interest coverage ratio (ICR), for fiscal 2012, plunged 1.9 times , the lowest in at least five years. In other words , for every Rs. 100 of interest payments, the firms earnings before interest and tax ( EBIT ) stood at Rs.1.90 . The comparable number for 2007 was almost five.
In the fiscal 2012, at least 17 firms did not earn enough to pay the interest ! The list includes some of the bigger and better known firms such as Hindustan Construction Co. Ltd, Gammon Infrastructure Projects Ltd and GMR Infrastructure Ltd. This might give us a sense of where India is headed . First we oversold the India story, and now we are gonna pay heavily for it ….. !
Emerging Economy – really ? Let’s have a look at the following figures ;
- According to the NSSO survey( July 2011 – June 2012 ), 10 % of India lives on less than Rs.17 a day . As per the survey , half of the population in rural India was living on a per day expenditure of Rs. 34.33 , and this is after two decades of reforms in India !
- About 8.3 % of the population is unemployed
- 54 % of Indian families live in houses that don’t have concrete or brick roof ( Census, 2011 )
- 47 % of the total households live in houses with mud floors ( Census , 2011 )
- More than 800 Mn don’t have toilets at home
- Millions of tonnes of grains are stored in the open as we have no place to store !
- Tata shut production of passenger vehicles for two days to avoid inventory pile up due to bad economic situation
- 1/3rd of rural Indians and 1/5th of urban Indians forego treatment due to lack of money
- 47 % of rural Indians and 31% of urban Indians finance treatment by loans or sale of assets
- One child dies every 16 seconds due to malnutrition , diarrhoea or pneumonia
- All major currencies have appreciated against dollar but rupee has weakened . Even Singapore dollar is up by about 50 % compared to rupee last year
GDP & Growth without fundamentals & eventual Collapse : This is the India’s growth story’s fate . Let me give you two glaring examples and rest you can relate for your conclude;
I have travelled to the draught prone areas, and heartland of farmer’s suicides i.e. Vidharbha region of Maharashtra . Lanco is setting up a power plant in Wardha and has purchased land for as high as Rs. 25 lac per hectare ( as per the farmers statement ). So , let’s look at this example where Lanco purchased 7 acre land from a farmer for Rs.1.75 crore . A farmer who was drought and debt ridden for years becomes a millionaire overnight, and buys a SUV for himself along with a rifle , gold jewelry for his wife , builds a pucca house with the money he gets , and the money is spent soon as he did not know how to plan and how much to spend and the land is also gone to Lanco ! Also, money brought in a lot of vices ( please check the number of AIDS patients in the region ! ). This company Lanco, runs a debt of Rs. 29300.00 crore and has gone for CDR ( Corporate debt restructuring ). The banks that gave the loan should be ready for a NPA ( Non-performing asset )! So , the farmer , the company Lanco and the bank have become a non-performing asset ….. whereas , the farmer buying a SUV, Gold etc, would have boosted the sale of vehicles , gold, wines, apparel companies temporarily , and soared the rates & increased the GDP ! So this is growth in GDP but not a sustainable one or growth without prosperity !
Let me quote another example : Country auctioned the airwaves (spectrum), a few years ago for which the companies paid tens of thousands of crore for airwaves. The companies took loans , passed on the cost to consumers ( Co’s were not wrong as they had to get an ROI for their investors ) and finally , like Airtel with over 200 million customers, run into a debt of about Rs. 60,018.00 crore ……….So , let me consider an alternative scenario . If companies were given spectrum for a nominal administrative fee of say Rs. 500.00 crore + 50 % revenue sharing . In that case, the companies would have invested more into infrastructure and services would have been better and much cheaper , also , the Government could have made a cool Rs.80,000.00 crore every year taking the current revenue of all telecom operators to be Rs.160,000,00 crore, with probably very little debt on telecom companies and no such scams ! Today, the telecom sector has a debt of Rs. 200,000.00 crore and government barely gets anything of the total revenue of Rs.160,000.00 crore as its revenue sharing is in lower single digits . All have lost due to myopic policies of the Government . This is what I call GDP without prosperity , and this is what our entire Indian economy is passing through . It has no depth but debt ! What I call as lack of strong fundamentals, for which none of the parties have shown a concrete action plan . Companies have stock valuations and we are measuring our strength on the stock market indices which are not at all in relation to our ground realities , and only 2 % people in our country dabble in stock markets whereas 98 % suffer the hallucinations of this economic growth and GDP which is backed by loans , subsidies and political doll outs and have become a drain on our economy & our economy is becoming a bottomless pit ! Here I will not fail to quote the maiden address of our former finance minister and current President of India on 15th August , 2012 ‘It is indeed a wake-up call to Indian polity that even 65 years after independence and 74 years after Bose’s observation ( Subhash Chandra Bose in 1938 had flagged at the 51st session of Indian National Congress at Haripura that country’s primary challenges were poverty , illiteracy and hunger ) , the number of poor in the country today outstrip the population of the country in 1947’
All the sovereign wealth should be leased on 50-50 % revenue sharing between the Government & the private sector companies , and never be auctioned ! There is no other sustainable model for our meeting the financing needs and auctions only give a one-time income ! This must be made a policy so that every year , Government can make decent money and invest in the infrastructure, growth and give good governance to all Indians
Indian population a mere statistics ? Let us take the example of the recently concluded London Olympics . China with a larger population came 2nd with 38 gold , 27 silver and 23 bronze medals and India came on 55th position amongst 79 nations with zero gold , 2 silver and 4 bronze medals ….. this is what our leaders have led us to ! With committed leadership we must have made it the top by now …..
Let us do a rough sum of Indian economy which has a GDP of approximately Rs. 100 lac crore and we still borrow about Rs. 5.2 lac crore every year, and we already have debts of about Rs. 45 lac crore . India’s 42 % of the net annual tax revenues of Rs.7.71 lac crore goes in servicing its debt ( Rs.3.20 lac crore ). Another 25 % goes in subsidies ( Rs.1.90 lac crore ) – an annual amount that would actually be Rs.78000.00 crore higher if off-balance sheet fuel subsidies to oil marketing companies were included. The fiscal deficit of Rs.5.19 lac crore – 5.9 % of nominal GDP – is 67 % of the net central tax revenue . This was detailed in TOI dated 19th August 2012. I had read somewhere that , 54 % of Indian’s income goes in interest payments on debts taken for decades , 30 % is the cost of running the inefficient Government & bureaucracy and 16 % for subsidies ……so I keep wondering , does India have any money at all to invest in infrastructure or for future !!!! ( Hope I am wrong in remembering these numbers and India does better ). If not , time to take action !
According to Apparel Promotion Export Council ( APEC) , an estimated 4.5 million jobs have been lost over the past 3.5 years . Do our policy makers know how an ordinary Indian would survive without a salary for even a week and what pains his family and relatives pass through him being a jobless !
If all of you witnessed the discount sales season, it was advanced and even extended to make up for the shortfall , and this must show the desperation from the companies to meet the numbers . Unfortunately , If corrective steps are not taken immediately , we will have more companies getting into CDR or closure and millions of jobs might be lost till 2015……worst is yet to come !
Let me quote a facts about why India gained political independence and what was the average age of leadership . Maulana Azad became the President of INC at the age of 35 , Bose became the President of INC at the age of 41 and Nehru became the President of INC at the age of 40… So now we know why we got political freedom and why we have not been able to get economic freedom ??? For a nation with more than 65 % of the population below 35 years , it is important to take care of the representation of youth to lead this country with fresh innovative ideas for a double digit growth and that too grounds up. Though our policy makers tell us that we cannot grow at about 8 % , but the fact is that, in 2011 calendar year , 12 countries clocked more than 8 % growth and some of them like Ghana , Iraq , China , Argentina and Turkey are not exactly small . We have been capped by the ‘old school of policy makers’ and their thinking , who believe that they know all and what they do is right ! This has to go now ! We need leaders with a nose on the ground , good governance and a strong political will and rest will fall in place . Government must earn from the rich and middle class, and help upgrade the lower income class to middle class on a ‘mission mode’ basis by empowering them by providing them training , education, healthcare and technology .
Our country’s finance ministers have taken to ‘Populonomics’ ( Economics of populism ) , and not ‘economics’, and this has clearly shown the results to the common man . India is heading towards an economic disaster and short cuts like FDI are short lived solutions !
I can bet you that if a party rises above caste , religion ,reservation, dynasty , and parochial regional politics, it is sure to win the youth and come to power without taking to populism !
It is the time for the finance minister to move from being an ‘efficient tax collector’ to ‘passionate creator of wealth through innovation & entrepreneurship ’. India is the only country in the world at this time that has ample opportunities for each problem to be solved and is a fertile basin for innovation ! If you were born as a human- being , you must be lucky, but if you are born as a human -being and that too, in India , you must be the luckiest on earth, and this describes our India today and what it can offer to the world !
All ministries must have wealth creation strategies ! Just imagine that for the year 2012-13, India will have gross tax receipts of 1,077612 crores and expenditure of Rs.1490925 crore…. Even if we do the sell-offs , we still cannot pay off the Rs.45 lac crores of debts that India has ! Which assets will be left to sell for our next generation ( oh boy that’s too far , I must say in the next 10 years ) ,to sustain our economy ? I think then , our Government will call upon the US President and ask his farmers & companies to come and invest in Indian land and make it more productive , and that will be the final sell off of this once a great nation i.e India
I am not an economist, though , I have studied economics during my graduation ( but I must confess that I do not remember anything I studied during graduation J , and I am glad that I don’t remember anything J) All that I have written here is a common man’s perspective from the data and facts available in the public domain. I have researched the state of economy well over five months to help our dear policy makers to do a better job and making the life of a common man better and not bitter !
I am leaving to US for two weeks on 14th October evening , and on my return, I will launch www.indiawewant.org ,and would welcome your suggestions and participation
With best wishes
Rajendra Pratap Gupta
Economy I Healthcare I Retail I Innovation
36 thoughts on “India – from Emerging to a Submerging economy”
NEW DELHI—India’s economy grew at its slowest pace in almost a decade in the year’s first three months, further evidence of its growth story turning sour amid global uncertainty and its government’s failure to push through reforms.
Gross domestic product in the quarter grew 5.3% from a year earlier, its slowest quarterly pace since early 2003. The rise was below economists’ forecasts of 6.1% and much lower than above-8% levels India has registered in recent years.
Some Indian business leaders, shocked by Thursday’s data, said they felt the country was heading toward the kind of situation last experienced two decades ago, when a severe economic slowdown forced the government to push through major market-opening reforms.
“This shows a grave crisis of investors’ confidence,” said Rajiv Kumar, secretary-general of the Federation of Indian Chambers of Commerce and Industry. “We may be in the danger of slipping into a 1991-like crisis.”
Economists also resorted to strong expressions of dismay: “A gasping elephant” was how Leif Lybecker Eskesen, chief economist for India at HSBC, described the Indian economy in a note to investors. He pointed at fragile global economic conditions and the lagged effects of the Reserve Bank of India’s many monetary tightening cycles.
For the fiscal year ended March 31, the economy grew 6.5%, below the government’s target of 6.9%.
Cognizant’s US SEC filing triggers fears of slow revenue growth in 2013; IT stocks take a plunge
ET Bureau Dec 6, 2012, 04.00AM IST
Wipro|U.S. Securities and Exchange Commission|TCS|stocks|Sensex|Second Stock Issuance|Nomura|NASDAQ|Motilal Oswal|IT stocks|Infosys|Indian IT league|IDFC|HCL Technologies|Earnings Guidance|Cognizant Technology Solutions|Cognizant|CLSA|BSE|BNP Paribas
(Many brokerages came out…)
BANGALORE: An innocuous regulatory disclosure on compensation by Indian IT’s newest star, Cognizant Technology Solutions Corp, has caused a mild stir across the sector, triggering worries whether the outsourcing industry may need to budget for another year of slow to moderate growth in 2013.
In a filing with the US market regulator on Tuesday, New Jersey-headquartered and Nasdaq-listed Cognizant, a majority of whose 1.5 lakh employees are based in India, said it will pay its senior executives 100% of performance-linked stock units if sales expand 16% in 2013. In its SEC filing, Cognizant also said it will pay senior executives 200% of the performance-linked stock units if sales grow 25% to $9.18 billion.
NEW DELHI, DEC. 7:
Suzlon Energy’s lenders will meet at Mumbai on Saturday to discuss the proposed terms of corporate debt restructuring (CDR) of the wind energy major.
The 21-bank consortium will deliberate on the various aspects of the debt restructuring plan before a final CDR package is submitted to the CDR cell, sources in the banking industry said. The proposed terms will include restructuring debt at Suzlon level, working capital enhancement to support business plans and shifting of servicing of overseas loans to REpower balance sheet.
Currently, the Suzlon Group cannot access the cash flows at REpower on account of tight ring-fenced financing by German banks. The cash flows can be accessed only after ring-fencing is removed.
As for restructuring debt at Suzlon level, the proposals on the table include extending tenor of existing facilities to 10 years (2+8) from existing repayment profile of 3-6 years. Also, reduction of interest rates to 11 per cent from 14-15 per cent will be discussed, sources said.
Suzlon Energy is understood to have a debt of about Rs 10,850 crore, which is now sought to be restructured. Bankers are also likely to discuss enhancement of fund-ased working capital by Rs 500 crore and non-fund based working capital by Rs 1,500 crore, it is learnt.
Hit by fall in sales and lack of demand motown has sent an SOS to the government. In the industry’s status report to the finance ministry, auto makers are seeking the government’s assistance to revive sales going forward. CNBC-TV18’s Ronojoy Banerjee reports.
The auto sector is clearly rattled. First you had the slowdown, which prompted the apex auto body SIAM to lower the growth forecast for the passenger car segment three times so far this year to just 1-3 percent. Then you had the Supreme Court ruling on Fiat because of which many original equipment manufactures (OEMs) were sent notices.
Therefore, this is really an effort by the industry to reach out to the government ahead of the budget; to apprise them of the situation that they find themselves in. That is why the industry has sent a status report and would be meeting senior finance ministry officials on Monday. This would be the first formal meeting between finance ministry and an industry body as part of the pre-budget meetings.
Among the key demands that have been put forth is once again the industry has sought the government to reduce excise duty specifically on small cars back to 10 percent. Last time around the finance minister then had increased the excise duty on large vehicles as well from 22 percent to 24 percent and including all other taxes it ranges anywhere between 24 and 27 percent on the larger vehicles. So, this the industry wants back at 22 percent. The big focus this time is on the commercial vehicle segment where they want some sort of a package and also they want the government to consider introducing a scrap it scheme.
Texas Instruments firing staff in India, plans to cut 300 to 500 jobs as part of global restructuring
Akanksha Prasad, ET Bureau Dec 4, 2012, 09.33AM IST
Texas Instruments|Texas Instrument|Satellite|Samsung|Reorganization|Qualcomm|layoffs|Intel|firing staff|Dallas|chip designer
(“Texas Instrument has cut…)
BANGALORE: Chip designer Texas Instruments (TI), the first global corporation to identify India’s technology prowess by setting up a development centre in the 1980s, is shedding a few hundred employees in India as part of a global restructuring. This marks another chapter in the company’s history and also the story of India’s IT industry.
Manufacturers cut production to match demand and supply
TNN | Dec 8, 2012, 07.10AM IST
PUNE: The economic slowdown in the country has begun showing its effect on the industry as manufacturing sector majors Tata Motors and Sandvik Asia have announced block closure to cut production and match it with demand.
Automobile manufacturer Tata Motors has declared a three-day block closure from 24 to 26 December at its Bhosari plant as the company’s commercial vehicles have faced a slowdown in sales during the year. Industrial and cutting tools maker Sandvik Asia has also announced block closure of nine days from December 7 to 15 saying it is an internal arrangement to adjust inventories as the company’s business year is coming to an end.
Tata Motors commercial vehicles business has been facing a slowdown in sales during the year. A person familiar with the development said the company will keep its commercial vehicles production at the Bhosari (Pune) plant closed during these three days. This is a measure to reduce inventory of commercial vehicles and to match the production with demand, the person said. “The demand for medium and heavy commercial vehicles has seen a decline in the last few months and the company has had to resort to block closure,” he said, adding that the decision to cut production will also mean cutting down on procurement.
Finance Minister P Chidambaram on Friday sought parliamentary approval to spend a net additional 308.4 billion rupees in the current fiscal year that ends in March 2013, which would further swell the fiscal deficit.
The demand comes on top of the budgeted target of around USD 275 billion, mainly to meet the rising cost of subsidies such as in oil, documents presented by Chidambaram in parliament showed.
The deficit during the April-October period rose to 3.68 trillion rupees, or 71.6 percent of the budgeted fiscal year 2012/13 target.
Chidambaram recently revised the fiscal target to 5.3 percent from an earlier estimate of 5.1 percent of GDP, but most economists expect the government to overshoot this and hit around 5.5-5.6 percent.
The advance tax collection from India Inc. for the 3rd quarter were more or less flat, suggesting that the slowdown is impacting the companies’ bottomline. This also rendered the targeted tax collection set by the govt. for Mar 31, 2012 a difficult target to achieve.
While ONGC paid the highest advance tax for Q3, it was IT major TCS that saw the maximum hike in its advance tax payout for Dec 2011. The usual major tax payers like RIL, SBI, Tata Motors and M&M, among others, made lower payments this time around.
Advance taxes from the FMCG sector were very encouraging, with HUL, ITC and Godrej Consumer Products posting a healthy growth in their respective outgo. Ditto was the situation with the cement sector, where Ambuja and ACC saw a magnificent rise in their advance tax payments.
Amongst the banking pack, while HDFC Bank, Axis Bank, Kotak Mahindra Bank and YES Bank did well, others like SBI, Dena Bank,
Central Bank, Union Bank and Bank of India disappointed on the advance tax front. It seems that the PSU banks may face some pressure in the coming quarters. ICICI Bank saw its advance tax outgo remain unchanged.
The pharma companies also seem to have fared well, judging by the initial tax outgo reported by Cipla, Pfizer and Novartis respectively.
Among the initial auto numbers, Hero MotoCorp and Bajaj Auto have done well, indicating a good run for the 2-wheelers. On the other hand, the disappointment shown by the tax outflow of M&M and Tata Motors has thrown up some concerns in the 4-wheeler segment. In fact, Tata Motors saw its advance tax outgo dip sharply by 93% to Rs 80 cr on a YoY basis.
The list of companies that have made no advance tax payout this quarter include the state-run oil marketers such as Indian Oil, Bharat Petroleum and Hindustan Petroleum.
Advance Tax (Oct-Dec 2011)
Particulars Q3FY12 Q3FY11 % Change Particulars Q3FY12 Q3FY11 % Change
ACC 95 40 137.5 ITC 910 790 15.2
Alok Ind 320 350 -8.6 Kotak Mahindra Bank 150 80 87.5
Ambuja Cement 115 60 91.7 LIC 1200 1050 14.3
Asian Paints 130 100 30.0 Mahindra & Mahindra 220 230 -4.3
Axis Bank 662 540 22.6 Novartis 20 18 11.1
Bajaj Auto 450 370 21.6 NSE 39 39 0.0
Bank of India 100 150 -33.3 NTPC 830 1000 -17.0
Castrol 70 80 -12.5 Nuclear Power Corp 165 95 73.7
Central Bank 100 180 -44.4 ONGC 2924 2742 6.6
Cipla 90 70 28.6 Oracle Fin 45 50 -10.0
Crompton Greaves 62 78.5 -21.0 Pfizer 30 25 20.0
Dena Bank 65 80 -18.8 RIL 1002 1190 -15.8
GCPL 40 15 166.7 SBI 1730 1850 -6.5
GIC 135 130 3.8 Siemens 70 120 -41.7
Glaxo Pharma 80 90 -11.1 Star India 15 10 50.0
HDFC 475 400 18.8 Tata Chemicals 70 55 27.3
HDFC Bank 900 750 20.0 Tata Motors 80 1190 -93.3
Hero MotoCorp 180 120 50.0 Tata Power 80 60 33.3
Hindustan Zinc 400 325 23.1 Tata Steel 1100 1000 10.0
HSBC 420 200 110.0 TCS 550 220 150.0
HUL 300 220 36.4 Union Bank 220 350 -37.1
ICICI Bank 450 450 0.0 Yes Bank 160 120 33.3
IndusInd Bank 120 110 9.1 Zee Ent 40 40 0.0
Advance tax payment is a reflection of the health of the companies and the economy, which provides valuable cues towards the expected profitability going forward. With this latest set of advance tax data, one can conclude that the Dec 2011 quarter will be more or less a continuation of the weak performance we saw in the previous quarters, if not worse. While the IT and pharma companies are expected to do well as a result of the favourable business environment that they find themselves in today, others like metals, auto, oil & gas and banks may face some pressures ahead.
MUMBAI: Tata Communications pink-slipped 300 executives, becoming the latest Tata Group company to slash jobs amid a sluggish global environment. The world’s largest wholesale voice carrier cut jobs across functions and geographies to speed up reforms, said a senior executive.
Tata Communications’ total employee strength stood at 7,913 as on September 30, 2012. Of that, 80% was based in India. Its engineering and operations unit employs the bulk (59%), followed by sales, marketing and account management (20%), corporate shared services (13%) and product management (8%). The move at Tata Communications, earlier known as VSNL, tracks the manpower restructuring at Tata Steel, Tata Motors, Tata Capital and Tata Teleservices. The Tata Group is the country’s largest private sector employer, led by Tata Consultancy Services with a staff of 2,38,583.
A Tata Communications spokesperson said that the company has made some organizational changes to align better to the current and future business requirements. These changes involved some positions in India and overseas that became redundant in the process.
NEW DELHI: The government is likely to fall short of more than Rs 75,000 crore in tax mop-up from direct and indirect taxes in the current fiscal.
With direct tax collection figures released for April-November 2012 on Tuesday, revenue department officials fear the shortfall is likely to be upwards of Rs 30,000 crore for the current fiscal.
The slowdown in industrial output had its impact on corporate tax where collection showed a paltry growth of 3% in the eight months to November. Gross direct tax collection growth too was not very encouraging as it went up by a mere 7% in the April-November period against an average of 15% required to meet the budget target of Rs 5.70 lakh crore for 2012-13.
The situation is not very rosy on the indirect tax front either. Against an average growth of 27% required to meet the budget estimate of Rs 5.07 lakh crore, indirect taxes rose at an average of 15% so far. The shortfall estimated could exceed Rs 45,000 crore unless the government goes in for some mid-course tax rejig.
Govt lowers growth projection for current fiscal to 5.7% in 2012-13
Finance minister P Chidambaram recently projected growth of between 5.5 and 6 per cent for the year.
PTI | Dec 17, 2012, 12.43PM IST
NEW DELHI: The government on Monday lowered the growth projection for the current financial year to 5.7-5.9 per cent from 7.6 per cent estimated earlier, while pitching for supportive monetary and fiscal policies to improve investor confidence.
“Given …an emerging scenario, it should be possible for the economy to improve the overall growth rate of GDP to around 5.7 per cent to 5.9 per cent for the year 2012-13”, said the mid-year economic analysis tabled in Parliament.
The economy, it added, would have to record a growth rate of 6 per cent in second half of the current financial year to reach the desired growth rate. It grew by 5.4 per cent during April-September 2012-13. The Economic Survey had pegged the growth rate at 7.6 per cent for this fiscal.
To achieve 5.7-5.9 per cent growth, the analysis said, “both fiscal and monetary policy, however, would need to be supportive to sustain investor confidence. The government will also have to address the concerns relating to structural supply side bottlenecks”.
The economic growth rate during 2011-12 had slipped to the nine-year low of 6.5 per cent due to both domestic and global factors. Earlier RBI had lowered the growth rate to 5.8 per cent for 2012-13.
Referring to inflation, it said, further moderation in price rise is likely to commence from the fourth quarter of the fiscal.
“Inflation at the end of March 2013 is expected to moderate to 6.8-7 per cent level”, it said.
As regards fiscal deficit, the analysis said, the government would endeavour to restrict it to 5.3 per cent of GDP as against 5.1 per cent envisaged in the budget.
The analysis said there “are reasons to believe” that the slowdown has bottomed out and the economy is headed towards higher growth in the second half of the fiscal. It said agriculture is expected to improve because of better prospects with rabi crops benefiting from greater moisture content in the soil and dominance of irrigated wheat and rice crops.
The document further said that most services, particularly the trade, transport, communication and financial services, being largely driven by the performance of real sectors will also have a better growth.
The Parliament was informed that a fiscal consolidation road map announced by the government on October 29 has “considerably improved business expectations and perception of the domestic and global investors”.
Referring to trade deficit, the document said it is expected that the gap in the current year would not be significantly higher than what it was last year. “Consequently, it is reasonable to expect that the current account deficit as a ratio of GDP would be lower than what it was in 2011-12,” the analysis added.
KOLKATA/NEW DELHI: GSM operators lost a whopping 9.68 million customers in November, their sharpest-ever monthly decline, dealing another crippling blow to India’s financially-stretched telcos who’ve resorted to aggressive pricing, weeding out inactive customers and slashing freebies to survive.
The United Nations has lowered global economic growth forecast for the coming two years even as it warned of a new global recession due to the US fiscal cliff situation and EU debt crisis.
It also said inflationary pressures and large fiscal deficit will limit the scope for policy stimulus in India.
NEW DELHI: India’s domestic air passenger traffic shrunk by almost eight per cent last month compared to November last year, in spite of expectations of a growing market during the peak winter season.
Domestic airlines carried 50.20 lakh passengers in November compared to 54.14 lakh passengers during the same period last year, official data released today showed.
During January-November this year, the number of passengers carried by Indian carriers declined by about three per cent. The airlines flew 5.34 crore passengers in the same period, down from 5.5 crore passengers flown last year.
Though several global bodies had earlier projected a growth in domestic air traffic in India, the International Air Transport Association (IATA) had recently said the impact of a recession was now being felt in India which had shown “the worst performance for any market” in October.
Tata Group has a debt of Rs. 1,72,776 crore – The Economic Times , 29th Dec, 2012
Ratan Tata Asks Group to be More Aggressive in Farewell Letter
OUR BUREAU MUMBAI
Ratan Tata, who retired as chairman of the $100-billion Tata Group on Friday, said his group will have to take several important measures in the next few years to cut debt and maintain margins even as the external environment remains challenging.
“We will probably see continued constraints in consumer demand, over capacity and increased competition from imports,” Tata, 75, said in a letter to all employees. Cyrus Mistry (43), succeeded Tata as the chairman on Friday.
“The group needs to be more aggressive in the market place and needs to widen the range of products to better address consumer needs,” Tata said in his letter. Tata also warned the group of the urgent need to trim borrowings and retain margins. The group owes . 1,72,776 crore to its lenders. Most of the debt resides in Tata Steel, Tata Motors and Tata Power. “He is giving a forewarning and a direction to the group,” says Professor HK Pradhan, who teaches corporate finance and economics at management school XLRI, Jamshedpur. “Many companies are facing a similar situation in aslowing economy,” he said.
“It’s a good tradition that he is sharing his view,” says a professor, who teaches corporate strategy at the Indian Institute of Management at Bangalore. “His successor can always take advice from Tata.” He cannot be quoted as he has not reviewed the latter.
“This environment would once again call on you for your support, commitment and dedication to achieve success in somewhat difficult times,” Tata, who will now head the two trusts, which own majority stake in Tata Sons, told his employees. But he added that the present gloomy picture is a passing phase.
Mall occupancy drops to 50 % as mall owners lose money
MUMBAI: Real estate developers who tried to encash on the high rentals for retail are now stuck with millions of square feet of unsold property in malls across the country.
According to a survey conducted by the Associated Chamber of Commerce and Industry of India (Assocham) over 52% of malls in Mumbai are vacant partly due to economic slowdown, poor designing, lack of robust revenue generation model and located in unattractive location. As per ASSOCHAM estimates, the total rate of vacancy in malls in Delhi-NCR is 55%, while in Mumbai it is 52% followed by Ahemdabad (51%), Chennai (50%), Hyderabad (48%), and Bangalore (45%). The position in the nearby town of these locations is much disturbing.
Developers have chosen to invest in malls in anticipation of high rentals from retail chains. Retail outlets generate several times the rental of commercial real estate. For instance in Hiranandani Powai in Central Mumbai Starbucks is understood to have rented out retail space at Rs 450 per square feet, in the same area the rent from commercial real estate is around Rs 90-125 per square foot. The government’s decision to allow FDI in multi-brand retail has raised hopes of the real estate industry.
Nationally, the vacant rates of shopping malls are 55% and will likely rise to 70% by 2015, according to the ASSOCHM analysis. More than 90 percent of shopping in India is still done at unorganised one-off shops, adds the survey. The industry body conducted a random survey of all the shopping malls in Delhi-NCR, Mumbai, Kolkata, Bangalore, Hyderabad, Ahemdabad, Pune, Dehradun, Chennai etc between October and December 2012. The survey found that many upcoming malls have significantly been delayed and withdrawn due to lukewarm response from retailers. They will also face manifold hike in construction cost.
There are approximately 1,200 shopping malls in India, the growth in the retail sector has driven a mall building boom across the country, with the total number of malls expected to increase to 1,500 by 2015 from 1,200 in 2012,” added the report. According to ASSOHAM Secretary General D S Rawat some of the developers in their enthusiasm have built malls without planning resulting in poor design and poor parking facilities while some are operating at 60% occupancy others are struggling at less than 20% occupancy. The occupiers are finding difficult to manage economically.
The survey also highlighted some of the challenges the industry is facing, which include inadequate infrastructure, unavailability of retail space, multiple taxes, lack of clarity in policies and shortage of experts in areas such as supply chain and store management. Now, they are shifting from lease/rentals models to revenue sharing models and this is encouraging large number of branding showrooms to open shops in malls.
“Biggest shopping mall can feel like a pretty lonely place, majority of retailers said that they are holding back on new store openings and focusing on existing stores”, adds the survey.
The sharpest decline in mall rental values are also recorded high in Delhi-NCR by 60%, while Mumbai also dropped by 58% in rentals followed by Ahemdabad (55%), Chennai (54%), Hyderabad (52%), Bangalore (49%), Kolkata (45%), Pune (42%) and Dehradun (40%). Nearly 82% of the retailers said that they are shutting down some of stores in areas where rentals are too high, and with the slowdown in consumption complicating things further. While real estate prices and construction costs are rising but the retail business is not growing enough to absorb this said Sunil Kumar Dhaiya, Co-Chairperson of ASSOCHAM Real Estate committee.
“Retail rents are down 60-65% from peaks in 2010 and that’s especially painful for developers, when servicing loans is expensive at 12-13 percent interest,”said Rawat. Nearly 76% of the shop owner’s said that increasing rents will not work because at the end of the day it has to be affordable for retailers to do business and the fate of the retail realty segment is intertwined with the retail industry.
New year starts with a number of reasons to worry, surging CAD, fiscal deficit & external debt big concerns
MUMBAI: Macroeconomic numbers released on the last day of a tumultuous 2012 flashed red, which may prolong the period of slow growth and painful adjustments necessary before the economy bounces back to blistering growth.
Current account deficit – the excess of imports over exports – surged to a new record; output of infrastructure industries such as coal and refineries inched up; fiscal deficit till November was at 80% of the budgeted amount for the year; and retail inflation for industrial workers rose marginally.
Getting back to 9% annual GDP growth may take a lot longer if the global economy slips into a recession due to differences between US political parties on taxes and welfare spending, popularly referred to as the ‘fiscal cliff’.
Slumping output at factories and current account deficit at 5.4% of GDP pose a conundrum to the Reserve Bank of India on lowering interest rates, though inflation is easing, as demand induced by lower funding costs could translate into higher imports, weakening the currency.
“The high current account deficit is a manifestation of the strong domestic demand,” said Srinivas Varadarajan, partner at Mount Nathan Advisors, an investment advisory firm to international investors. “Aggregate demand is still robust and any cut in interest rates could lead to a weaker currency.”
Current account deficit widened to a record in the September quarter as exports slumped amid a deteriorating global economy while imports fell a lot less proportionately. Gold remained the culprit, with demand remaining strong as investors preferred physical assets over financial assets with low real returns.
Current account deficit was at $22.31 billion in the September quarter, up from $16.4 billion in June and $18.9 billion in the September quarter last year, RBI said. Nearly two-thirds of the deficit are being funded by overseas portfolio inflows, which are considered volatile.
“Steeper decline in exports compared with imports led to the widening of trade deficit,” RBI said.
Merchandise exports fell 12.2% in the September quarter, compared with an increase of 45.3% in the same quarter last year. Imports declined 4.8%, compared with a 38.1% increase last year.
“CAD at 5.4% is quite bad and will clearly have negative effect on the rupee,” said Ashish Vaidya, executive director, trading, at UBS. The rupee slid 0.4% to the dollar at 54.995.
Total external debt as of September rose 5.8% to $365.3 billion since March 2012, triggered by higher NRI deposits, short-term debt and commercial borrowings. The ratio of short-term debt to foreign exchange reserves rose to 28.7%, from 26.6% in March. The foreign exchange reserves cover fell to 80.7% from 85.2%, data from the finance ministry shows.
Other macroeconomic numbers are not encouraging either.
Some of India’s auto giants reported on Tuesday a modest increase and some a drop in sales of new cars for the month of December, despite recent festive discounts and new models launched.
Tata Motors, India’s leading vehicle maker, showed a 51 percent year-on-year drop in sales at 14,185 units, compared to 28,916 the same time last year.
The Indian unit of Hyundai Motor, the country’s second-largest car maker, said its sales in December slid 2.5 percent to 47,833 cars from a year earlier.
But Ford’s India sales grew nine percent to 6,517 vehicles in December while exports more than doubled to a record 4,382 cars from a year earlier.
India’s largest passenger car maker, Maruti Suzuki, has yet to report sales data for December.
India has been one of the world’s fastest-growing car markets in recent years and global auto makers raced to set up factories to supply local demand.
But purchases slowed sharply in 2012 as consumers grew wary of committing to big-ticket items due to the economic slowdown, costlier auto loans and high fuel costs.
The Society of Indian Automobile Manufacturers last year slashed its car sales growth forecast, for the financial year to March 2013, to between one and three percent from an earlier nine to 11 percent forecast.
India’s economic growth eased to 5.3 percent year-on-year in the July to September quarter, extending a prolonged downturn, while interest rates remain high as the central bank seeks to tame stubbornly high inflation.
Copyright (2013) AFP. All rights reserved.
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World Economy is not looking good till 2017 as per United Nations
BANGALORE/HYDERABAD: Faced with continuing uncertainty in their largest markets, US and Europe, mid-sized technology outsourcing companies will give out tepid pay hikes and cut down on their campus hiring in 2013.
Coming out of a slow year when the IT industry saw slowing revenue growth thanks to clients being more cautious about technology spending, software services exporters such as Infinite Technologies, Mastek, Mahindra Satyam and Infotech Enterprises said the pay hikes could be as low as 5% this year.
Compared to double-digit pay hikes till a few years ago, salary increments in India’s $100-billion (Rs 5.5 lakh crore) IT industry has been consistently declining since the financial crisis of 2008, from which US and Europe is yet to completely recover. “Wage hikes for IT employees will be lower than last year due to slowdown in the US and European markets and pricing pressure from clients there,” said BVR Mohan Reddy, chairman and managing director of Hyderabad-based Infotech Enterprises, which employs about 10,000 people.
It had given out average pay hike of 15% to its offshore employees and 3% to employees in onsite locations in US or Europe. “Hiring too will be lower compared to last year,” Reddy said.
Indian IT companies typically give out salary increases during the first three months of the financial year that starts in April while campus job offers are made in November-December. IT firms hire close to 1.5 lakh students from campuses every year. But with large companies unable to predict near-term growth with any degree of certainty, industry watchers say they are doubtful about robust growth among larger IT companies, let alone tier-II firms.
“There are no signs of de-growth as of now, but companies have clearly become more selective about hiring,” said Aditya Narayan Mishra, head of staffing business at human resources firm Randstad India.
Hyderabad-based Mahindra Satyam, for instance, said it plans to cut down on its campus hiring by 50% in the coming year due to the unpredictable business environment.
“You can be sure that it will be a muted year,” said Hari Thalapalli, chief people officer at Mahindra Satyam, which gave 6.5% hike to offshore and 1.5% to onsite employees last year.
Thalapalli’s concerns are echoed by other executives in the industry such as Farid Kazani, chief financial officer at Mumbai-based Mastek who said that as of now things look “quite muted.”
“We don’t expect a major increase (in pay hike) due to the on-going pressure in the IT sector,” Kazani said. With large firms such as Infosys and Wipro offering meagre hikes and postponing hiring decisions, Kazani said mid-tier IT firms find it easier to retain employees. “There is no pressure to hire or offer wage hikes.” Mastek said it will take a final call on pay hikes in a month’s time.
Last year, the country’s second-largest IT exporter Infosys had delayed joining dates of over 20,000 freshers and did not give pay hikes to its over 150,000 employees during the normal schedule, citing volatility in business environment. Its cross-town rival Wipro gave 8% average wage hike to its offshore and 3% to onsite staff. This year it will be below 10%,” said Upinder Zutshi, chief executive officer at Infinite. “The coming year will be challenging.
Infosys to sack 5000 staff
BANGALORE: InfosysBSE 0.51 % has begun sacking employees at the bottom of the performance pile, returning to a practice it adopted during the peak of the global economic crisis in 2008 and 2009, according to people familiar with the development.
The renewed lack of tolerance for poor performance, which will affect up to 5,000 employees, is indicative of the pressure the software company faces to curtail costs while pivoting towards a more aggressive sales strategy.
The Bangalore-based company is resorting to retrenchment by suspending a plan crafted by co-founder NR Narayana Murthy to help underperformers come up to scratch. Instead of giving underperforming staff up to six months for retraining, India’s second-largest software company is asking the worst performers, about 3-4% of the 1.5-lakh workforce, to leave straightaway.
Infosys spokeswoman Sukanya Ghosh did not reply to emails, phone calls and text messages seeking the company’s comments.
This is the latest in a series of management decisions perceived as employee-unfriendly. Some months ago, Infosys, which has been lagging the industry in growth for over a year, had frozen salary hikes, blaming bad market conditions and insufficient visibility into near-term growth. It relented eventually and announced increments after its main rivals revised salaries for staff.
“Earlier, companies would go the extra mile to retain them (poor performers). But lately, due to slow business growth, they are seriously looking at downsizing,” said Kris Lakshmikanth, CEO of Headhunters India, a human resource consultancy.
With a sales growth forecast of about 5% for the year to March 2013, Infosys figures at the bottom among India’s top IT firms. Analysts expect Infosys to further lower growth guidance when it announces earnings for the three months to December on January 11.
Infy Eyeing Riskier Deals
In a report on Tuesday, Vishal Agarwal, equities analyst at brokerage Jefferies, wrote that he expects the forecast to be lowered to 4%, excluding contribution from Lodestone, the Swiss company that Infosys acquired in September for $350 million. In comparison, Nasscom expects the industry to grow at more than double the pace, or at least 11%.
Infosys, which is perceived as a conservative company, has been sending out signals that it is more willing to take on riskier deals, some of which involve taking over assets and employees of clients.
A more aggressive customer-acquisition strategy comes with the danger of diluting margins, a prized metric for the company.
“An additional month (of retaining a low-performer) would be an additional cost to the book,” said Vijay Sivaram, business head for recruitment solutions division at Bangalore-based HR consultancy Ikya.
In a similar move in 2009, Infosys had pink-slipped more than 2,000 employees at the bottom of the performance heap.
Post the financial crisis, which began in 2008, work volumes haven’t picked up significantly for Infosys, resulting in increasing number of employees not working on any billable projects.
Among Indian IT companies, Infosys and WiproBSE 1.47 % have the lowest efficiency levels, with about 30% of employees sitting idle.
“We believe cleaning out employees at the bottom of the pyramid will become the new norm across all IT companies and will stay for this year,” said Sangeeta Lala, co-founder of TeamLease.
Growth may fall below 5 %. Already, we have grown the lowest in the last 9 years.
MUMBAI: Planning Commission member Arun Maira today warned that economic growth rate could fall below 5 per cent if there is deep policy and governance paralysis.
Addressing an international seminar on design organised by industry body CII here, Arun Maira said: “By muddling around, and if there is a deep policy paralysis, a governance paralysis, we could get around 5 per cent or even lower growth rate in the coming years.”
“6.5 percent growth for the next eight years or so is very likely if we keep delaying (some) crucial decisions”, he said.
The National Development Council (NDC) has already scaled down the average growth target for the 12th Plan to 8 per cent from 8.2 per cent envisaged earlier. The average growth rate was 7.9 per cent in 11th Plan (2007-12).
The country recorded 9-year low annual economic growth of 6.5 per cent in 2011-12. The economy has grown by 5.4 per cent in the first half of this fiscal (April-September).
Maira said the country cannot afford to have such low growth rates as we need to create millions of new jobs.
Stating that manufacturing is very critical, he said the country has not done well on the manufacturing front during the past 15-20 years.
Blaming it on poor infrastructure, Maira said, “What’s coming in the way of growing manufacturing is physical infrastructure like roads, power etc. Infrastructure doesn’t support competitive manufacturing here.”
About the regulatory environment, he said, “We are one of the worst places to do business in the world because our regulations are outdated, they are too many and they tangle with each other and they are badly administered.”
Calling for better governance systems, he said the Planning Commission is insisting on a study of government programme architecture, which should become more local. In the current model, the government “is working in silos”, he said.
“We also need to change our functioning and learn from the experiences of others. Right now our system is “learning proof” — agendas get driven top-down and the learnings don’t get implemented at all.”
Car sales expects weakest growth in nine years
(Reuters) – India’s car sales are expected to post their weakest growth in nine years, if any at all, as automakers such as Tata Motors (TAMO.NS) and Maruti Suzuki (MRTI.NS) battle with falling demand due to high interest rates and rising car ownership costs.
Slumping GDP growth, rising fuel prices and expensive credit have slashed car sales in India, a market that was the toast of the industry two years ago and has attracted billion-dollar bets from global manufacturers hungry for growth.
“Negative sentiment among lower-end customers by virtue of interest rates not coming down, high fuel charges; all these put together is hurting sentiments,” said S. Sandilya, president of the Society of Indian Automobile Manufacturers (SIAM).
SIAM cut its car sales growth forecast for the year that ends in March to 0-1 percent on Wednesday, its third downgrade this financial year from an initial estimate of 10-12 percent.
Car sales in India, where major players include Tata, Maruti and South Korea’s Hyundai Motor Co, have grown every year since the financial year that ended in March 2004.
Lobby group SIAM will appeal to the government for industry-boosting measures including cutting taxes on larger cars in March’s federal budget, Sandilya told reporters at a quarterly press briefing in New Delhi.
“Going by current trends, we do not think the industry will be able to recover in the fourth quarter (January-March) unless government extends full support,” said Sandilya, who called on the central bank to reduce “extremely high” interest rates which currently stand at 8 percent.
Most of India’s large and rapidly-growing middle class, largely responsible for powering car sales growth, depend on loans and credit for big purchases.
SIAM also cut its forecast for motorcycle sales growth this financial year to 3-5 percent from 5-7 percent previously, and for commercial vehicles to 0-2 percent, again citing high interest rates and slowing economic growth.
Car sales in December fell 12.5 percent year-on-year, SIAM said, their second straight monthly decline and fourth in five months. Sales so far this financial year are down 0.33 percent on the same period a year ago.
After a 30 percent expansion in sales in the financial year 2010-11, a slew of global carmakers including Ford, General Motors, and Nissan invested billions of dollars in building up their Indian operations.
But a series of interest rate rises by the inflation-wary Reserve Bank of India combined with a slowdown in India’s once-breakneck GDP growth saw sales growth fall to just 2.2 percent last year.
(Writing by Henry Foy; Editing by Daniel Magnowski)
Growth may slow down to less than 5.2 % and India can get downgraded to Junk status
New Delhi: HSBC has cut India’s growth forecast for this fiscal to 5.2 percent from 5.7 percent, citing insufficient progress on structural reforms and slow implementation of infrastructure investment projects.
HSBC has lowered India’s growth forecast for this fiscal to 5.2 percent from 5.7 percent projected earlier, and for financial year 2013-14 to 6.2 percent from 6.9 percent.
HSBC said the fiscal and current account deficits have turned “uglier”, but the recent reform push, if sustained, should help lift growth and “beautify” the twin deficits, but it will take some time.
“We think the reform process will take time and it will likely be another three years before growth returns to 8 per cent on a sustained basis,” Qu Hongbin MD and Co-head Asian Economics Research at HSBC said in a research note.
Growth is expected to recover from 5.2 percent the current fiscal to 6.2 percent in 2013-14 and further to 7.5 percent in 2014-15.
Meanwhile, rating agency Fitch warned this week of a downgrade in India’s sovereign rating in the next 12-24 months citing slowing GDP growth and weak public finances.
In April and June last year, another rating agency S&P, had warned of further downgrades, which would put India into a junk status from the current lowest investment grade rating of BBB-.
HSBC, however, lauded the government’s reforms push and said: “All in all, policy in India is moving in the right direction and the reforms will likely continue to inch forward, although much still needs to done and some of the bills may not passed in the near term”.
“However, it is important to be realistic about how long this will take. These types of policies need time to kick in,” the report added.
HSBC said India is likely to see a gradual recovery in growth as reforms process gathers pace and implementation of infrastructure projects pick up, which in turn would help alleviate supply side constraints and slowly revive the investment cycle.
Moreover, a gradual stabilisation of global economic conditions during 2013 would also help support the moderate recovery, HSBC said.
In the first half of FY13, the GDP clipped at a poor 5.4 percent, and the government expects to close the fiscal year under 5.7 percent.
Over the medium term it is crucial for the government to continue the consolidation efforts at both the central and state government level, to achieve fiscal sustainability, which would eventually help to bring growth back to the levels seen a few years ago.
Earlier in September last year, HSBC had cut India’s growth forecast for 2012-13 to 5.7 percent from 6.2 percent projected, citing lack of ‘reform traction’ in the country and weak global economic backdrop.
Jobless to hit a record high in 2013 – I predicted it last year – Rajendra Pratap Gupta
Geneva: Five years after the global financial crisis hit, unemployment numbers continue to soar, with a record 202 million people worldwide expected to be officially jobless this year, the International Labour Organisation said on Tuesday.
Last year saw a clear resurgence of the crisis, the UN’s labour body said in its annual report on global employment trends, pointing out that jobless numbers rose by four million to 197 million in 2012.
“This figure means that today there are 28 million more unemployed people around the world than they were in 2007,” before the crisis, ILO chief Guy Ryder told reporters in Geneva Monday.
Last year’s unemployment number inched up towards the all-time record of 199 million reached at the epicentre of the crisis in 2009, but “we will beat that record in 2013”, an ILO expert told AFP.
In fact, another 5.1 million people are expected to join the jobless ranks this year, bringing the total number to more than 202 million.
That number is expected to rise by another three million in 2014 and should hit 210.6 million by 2017, ILO said, adding that the global unemployment rate was expected to stay steady at 6.0 percent until then.
“The trends are very much (going) in the wrong direction,” Ryder said, lamenting a “noticeable worsening of the unemployment situation around the world”.
The impact of the economic crises on the global labour market had in many cases been worsened by incoherence between monetary and fiscal policies and “a piecemeal approach” to the problems, especially in the Eurozone, the report said.
“Weakened by faltering aggregate demand, the labour market has been further hit by fiscal austerity programmes in a number of countries, which often involved direct cutbacks in employment and wages,” it said.
At the same time, “labour force participation has fallen dramatically … masking the true extent of the jobs crisis,” ILO said, pointing out that 39 million people dropped out of the labour market altogether last year as job prospects became increasingly gloomy.
Young people have been especially hard-hit by the expanding jobless trend, the UN agency said, pointing out that there are currently some 73.8 million youths, aged 15 to 24, without work worldwide.
“And the slowdown in economic activity is likely to push another half million into unemployment by 2014,” the report cautioned.
Last year, the global youth unemployment rate stood at 12.6 percent, and it was expected to rise to 12.9 percent by 2017, according to ILO.
“The crisis has dramatically diminished the labour market prospects for young people, as many experience long-term unemployment right from the start of their labour market entry,” the UN agency said, adding that it had never seen anything similar during previous downturns.
Today, around 35 percent of all young people on the dole in advanced economies have been out of work for six months or longer, up from just 28.5 percent in 2007, the report showed.
Banks’ loan recasts surge to Rs.2.12 trillion
Indian lenders restructure Rs.24,584 crore in Oct-Dec, up from Rs.19,544 crore in previous quarter
Mumbai: Slowing growth in Asia’s third largest economy, high cost of money, and project delays are denting the ability of Indian companies to repay their loans, leading to an unprecedented surge in restructured assets.
Total loans restructured by Indian banks under the so-called corporate debt restructuring (CDR) route crossed Rs.2 trillion in December. In the October-December quarter, banks restructured Rs.24,584 crore of loans, up from Rs.19,544 crore they recast in the previous quarter, to reach Rs.2.12 trillion.
Under CDR, commercial banks typically stretch the repayment period to stressed companies, offer a moratorium and reduce lending rates, among other things. In the event of a restructured loan turning bad, the provisioning liability shoots up to 15% from 0.4% for loans that are standard.
Many analysts suspect that 25-30% of the restructured loans may turn bad unless there is a significant revival in the economy.
“There is definitely more pain to come as more cases are likely to come up for restructuring, especially from money given to infrastructure sector,” said V. Sri Karthik, an analyst at Espirito Santo Securities India Pvt. Ltd.
In the current fiscal year, banks have recast Rs.62,085 crore under CDR, around 50% more than the restructured loans in the whole of last year. Banks have overall restructured Rs.2.11 trillion of loans from 362 cases through the CDR route.
The actual figure of restructured loans might be nearly double this estimate as it does not include bilateral restructuring cases that banks undertake individually with companies.
Such a rise is significant as most analysts believe that banks will have to recast more loans in the approaching months, given the slow pace of recovery in India’s economic growth and lower prospects of aggressive rate cuts by the Reserve Bank of India (RBI) as inflation continues to remain beyond its comfort zone.
Indian banks began restructuring on a massive scale in 2008 for loans given to property developers and small and medium enterprises in the aftermath of the global financial crisis that followed the collapse of US investment bank Lehman Brothers Holdings Inc.
At that time, the recasts were done after RBI gave special dispensation to banks to recast loans to certain segments without classifying them as substandard assets.
“While 15-20% of those loans have turned bad during the 2008 cycle, the percentage could be 25-30% this time as the recovery in growth is slow and chances of a rapid cut in interest rates are less unlike in 2008-09,” Karthik said.
Hit by global and domestic factors, India’s economic growth slowed to 5.3% in the September quarter from 5.5% in the preceding three months. RBI is yet to heed a widespread demand for a rate cut to prop up growth, citing persistently high inflation.
Bad loan levels in the banking system have spiked in the past few years because of a slowing economy. Gross non-performing assets (NPAs) of 40 listed Indian banks rose to Rs.1.66 trillion in September, up 46.8% from a year-ago period.
Among the large banks that have the maximum amount of NPAs are the nation’s largest lender State Bank of India (5.15%), Central Bank of India (5.54%), UCO Bank (4.88%) and Punjab National Bank (4.66%).
“Increasing loan recasts are certainly a concern and this will definitely have an impact on the profitability of banks,” said Ananda Bhoumik, a senior director at India Ratings and Research Pvt. Ltd, formerly known as Fitch India.
Stress in many sectors is likely to ease towards June when a pick-up in economic growth is widely expected, though problems pertaining to the infrastructure sector, where clearance bottlenecks often lead to project delays, are likely to persist, Bhoumik said.
Bankers said they are left with few options but to recast the loans of their troubled borrowers.
“It is indeed a risk, but not an extremely large risk and unmanageable. This is a reflection of a slowing economy,” said Arun Kaul, chairman and managing director of Kolkata-based state-run UCO Bank.
Kaul, however, is optimistic about a recovery. “Most of the financial indicators indicate that the worst is over and things will start improving from now on,” Kaul said.
Rating agencies are keeping a close tab on the rise in the restructured loans and resultant stress in the system. Crisil Ltd, the Indian unit of global rating agency Standard and Poor’s, expects the total loans restructured by Indian banks to touch Rs.3.25 trillion by March 2013. Crisil had earlier predicted Rs.2 trillion by March.
In a report released on Monday, global rating agency Moody’s Investors Service said the credit outlook for banks in the Asia-Pacific region in 2013 remains stable on the expectation that they will remain insulated from the negative credit pressures that are affecting western banks, but banks in India and Vietnam continue to carry negative outlook owing to their asset quality pressures.
According to Moody’s, impaired loans are yet to peak in India among public sector banks. “While the government is likely to remain supportive, relatively high inflation and modest fiscal capacity mean that policy options are constrained,” the report said.
A major chunk of the restructuring between October and December emerged from the iron and steel, infrastructure, textiles and construction sectors. Ironically, most of the restructuring burden is on state-run banks, which have a substantial exposure to troubled sectors such as iron and steel, textiles and power.
These lenders are often forced by the government, the majority shareholder in these banks, to restructure loans. For instance, in May last year, the government had announced a Rs.35,000 crore debt-restructuring package for troubled textile companies through public sector banks.
Core sector growth slows down to 2.6% in December 2012
PTI | Jan 31, 2013, 06.06PM IST
NEW DELHI: Contraction in the output of natural gas, coal and fertiliser has slowed down the growth of eight core sectors in December 2012 to 2.6 per cent, which may have a bearing on the overall industrial production.
However, the growth in the month under review has shown a marginal improvement over the previous month, when the sectors registered a growth rate of 1.6 per cent.
The key infrastructure sectors had recorded growth of 4.9 per cent in December 2011.
The cumulative expansion of these industries in April – December 2012 slowed to 3.3 per cent from 4.8 per cent in the same period previous year, according to the official data released today.
The eight industries include crude oil, petroleum refinery products, coal, electricity, cement and finished steel and have a weight of 37.9 per cent in the overall Index of Industrial Production (IIP).
The decline in growth in December 2012 was “on account of negative growth witnessed in the production of coal, natural gas and fertiliser”, it said.
Economists said that the under performance of the core sectors points towards economic slowdown. These numbers will have implications on industrial production data for December to be released later next month.
“These sectors are continuously under performing. It will have its effect on IIP as well,” Crisil chief economist D K Joshi said.
Belying expectations of recovery, economic growth slipped further in the July-September quarter to 5.3 per cent, raising fears that the slowdown may pull down the annual growth rate to decade’s low level.
So here are the weak fundamentals of the Indian Economy and why it will slow down……
India’s growth slowdown rooted in structural issues
The economic fundamentals are weak, but the recent policy moves are encouraging
First Published: Thu, Feb 07 2013. 11 26 AM IST
IMF says India’s potential growth rate has fallen in recent years, and is now estimated at around 6-7%, lower than the pre-crisis estimate of 7.5-8%. Photo: AFP
Economy likely to grow at less than 6%: Kaushik Basu
Christine Lagarde | Shadows over the global economy
India and the sea of global liquidity
IMF does a rethink on capital controls
Updated: Thu, Feb 07 2013. 02 55 PM IST
There are no easy exits for the Indian economy—it will likely continue to battle anaemic growth and persistent inflation.
The Central Statistics Office said on Thursday that the Indian economy is likely to grow at just 5% in 2012-13, far lower than most estimates. That will be 1.2 percentage points lower than the growth rate in the previous fiscal year.
It is clear that the slowdown is now generalized. Almost every component of economic output has slowed in 2012-13. Only “community, social and personal services”—an indicator of government spending—is growing faster than last year. And that too could change if the government is committed to keeping its fiscal deficit under control.
To be sure, it is quite likely that the economy is bottoming out, and we could see a mild uptick in the coming fiscal year that begins in April. But it also seems likely that the Indian economy will not be expanding at anywhere near that pace we saw during the boom years. It will continue to struggle because of deep structural problems that have emerged in recent years, largely because of policy confusions and the lack of meaningful structural reforms since 2004.
To understand the nature of these structural problems, take a look at another recent document. The International Monetary Fund (IMF) has provided a very useful summary of the Indian economy, in a report published on Wednesday based on its annual consultations with the government.
Here are eight issues that stand out.
1. The main reason the Indian economy has lost momentum is the slowdown in corporate investment and infrastructure building. Other factors such as global problems are relatively less important. But what began as an investment slowdown has now become a generalized slowdown.
2. Interest rate reductions alone will not help bring investment on track. It is not high real interest rates but other impediments such as policy uncertainty, delayed project approvals, slow project implementation and electricity shortages that are holding back investment activity.
3. External vulnerability is rising thanks to the record current account deficit. Foreign debt is up 53% in the past three years, much of its concentrated in companies. The external debt-GDP ratio is still comfortable compared to other emerging markets. The overall external situation is still manageable, but the importance of debt in capital flows is rising and the adequacy of foreign exchange reserves is falling.
4. The recent attempts to rein in the fiscal deficit are encouraging. Subsidy reforms should be the focused on bringing down the subsidy bill. Fiscal discipline led by lower public investment will harm growth.
5. The Indian corporate sector is looking more vulnerable, further harming the investment outlook. Its median leverage is far higher than what is to be found in companies in similar emerging markets and more than what it was before the crisis. The rise of unhedged foreign exchange loans is also a worry.
6. Bad loans in the banking sector are rising, as is usual at the end of a credit boom like the one India experienced. Bank capital ratios have only fallen slightly. Weaker credit quality has contributed to decelerating non-food credit growth. Bad loans and debt restructurings will continue to increase.
7. The recovery will be a slow one. India’s potential growth rate has fallen in recent years, and is now estimated at around 6-7%, lower than the pre-crisis estimate of 7.5-8%. The authorities have limited policy space because of a high fiscal deficit and entrenched inflation.
8. A sustained slowdown will have social implications. . “Lower medium-term growth might not generate sufficient jobs to absorb labour market entrants. Weaker growth also entails a slower reduction in poverty. IMF research suggests that 35 million more people would remain below the $1.25/day line compared to a scenario in which growth returns to the 2004–09 average,” says the report.
India will slow down further – This is what i wrote last year ..
Indian economy may decelerate further, says IMF report
Slowing investments, high inflation, possible populist fiscal expansion may hurt growth further: report
Asit Ranjan Mishra | Remya Nair
First Published: Thu, Feb 07 2013. 12 08 AM IST
The IMF headquarters in Washington, D.C. IMF says India’s current economic slowdown is more driven by domestic structural constrains than external factors. Photo: Wikimedia Commons
Updated: Thu, Feb 07 2013. 01 16 AM IST
New Delhi: The International Monetary Fund (IMF) has warned against growing risks in the Indian economy and said growth may decelerate further because of slowing investments, high inflation and possible populist fiscal expansion.
“Since recovering rapidly from the global financial crisis, India’s economy has slowed substantially, and its growth rate is expected to decline further in the coming year for a range of domestic reasons,” IMF said in its annual health check of the Indian economy under the article IV consultation with the Indian government released on Wednesday.
IMF has projected the economy to grow 5.4% in 2012-13. The government will release the advance growth estimate for the year on Thursday. The Indian economy grew at 6.2% in the previous year.
IMF said external risks such as protracted slow growth in Europe and likelihood of capital outflow from emerging markets could pose serious challenges for India. Acknowledging the ongoing structural reforms being carried out by the government such as reducing subsidies on fuel and fiscal consolidation, the fund said such changes present both upside and downside opportunities. “A faster pace of reform could entail higher growth, while insufficient follow-through would weigh heavily on the outlook,” it said.
Naveen Kumar Saini/Mint
However, IMF said India’s slowdown is more driven by domestic structural constrains than external factors. “Global factors have hurt exports and weighed on investment, but India’s growth has slowed by more than the decline in trading partners’ growth would imply. Capital inflows remain resilient and international financing conditions favourable, suggesting that so far the financial channel has not been prominent in the transmission of external shocks,” it said.
While the government has begun to rein in expenditure, this year’s modified fiscal deficit target of 5.3% of GDP is still likely to be breached by 0.3 percentage points. However, IMF said the political risk taken in raising diesel prices indicate the government’s commitment to fiscal consolidation. Indian government officials told IMF that by 2016-17, cash transfers are expected to be in place for key subsidies, which will reduce the fuel and fertilizer subsidies.
Rating agency Crisil Ltd chief economist D.K. Joshi said both external and domestic economic environment has improved in last six months, which is mildly positive for growth outlook for next fiscal year. However, he maintained that investment will not revive quickly due to rate cuts by the central bank and recovery will remain fragile. “Sustainability of growth recovery beyond 2013-14 will depend on recovery in domestic investments,” he said.
IMF also warned against rising corporate debt restructuring by banks, which increased to 5.4% of loans in June 2012 from 3.7% in March 2011. “Corporate financial positions have weakened considerably, further dimming the outlook for investment and heightening vulnerabilities. Profitability, which had recovered after the global financial crisis, has weakened mainly due to weaker internal and export demand, bottlenecks, slow permits for infrastructure projects, and rising interest rates,” the report said.
The report observed that public sector banks are the worst hit with large exposures to infrastructure, especially power, aviation, agriculture, steel, and textiles. It also pointed out that loans to 10 of India’s largest conglomerates account for almost 100% of banks’ net worth.
The fund also warned about the deteriorating asset quality of banks as gross non-performing assets (NPAs) crossing 3% mark in the current fiscal. “With growth likely to be weaker for a longer period than after 2008-09 and the loan composition of banks more skewed toward large loans, more restructured advances are likely to slip into NPAs compared to the historical average of 15%,” it said.
The fund said the government needs to push forward with reforms such as developing the corporate bonds market and gradually lowering government-mandated purchases by banks of government debt to ensure India’s financial system is able to underwrite strong growth.
With domestic investment particularly hard-hit, IMF said India’s potential GDP is likely to be lower than previously estimated, down from 7.5-8% to 6.5%. The RBI estimates India’s potential growth at 7%.
Overseas bad loans of Indian banks on the rise
Stress in overseas portfolios visible more in exposure to consumer-driven sectors, some corporate segments
Dinesh Unnikrishnan | Anup Roy
First Published: Thu, Feb 07 2013. 12 09 AM IST
A file photo of SBI’s headquarters in Mumbai. India’s largest lender has added about $15 million of fresh bad loans to its overseas loan book in the last six months. Photo: Hemant Mishra/Mint
Updated: Thu, Feb 07 2013. 12 46 AM IST
Mumbai: Some of the largest Indian banks are starting to feel the heat from the prolonged weakness in global economies, which has led to an increase in bad loans in their overseas portfolios and prompted them to recast loans that are on the verge of turning bad.
State Bank of India (SBI), the nation’s largest lender by assets, and its public sector peers Bank of Baroda (BoB) and Bank of India (BoI), among others, are witnessing a rise in their non-performing assets (NPAs) overseas.
Banks are treading cautiously in expanding overseas business as the US struggles for recovery, Europe battles its debt woes and the rest of the world feels the double impact. The increase in bad loans hasn’t reached alarming levels yet, but can take a turn for the worse if the slowdown in world economies persists, analysts say.
It’s bad news for India’s banks, especially those in the public sector, which have seen bad debt pile up in their domestic portfolios as slowing economic growth and high interest rates make it more difficult for customers to repay loans.
The stress in overseas portfolios is visible more in banks’ exposure to consumer-driven sectors such as tourism and real estate, and some corporate segments.
SBI has added about $15 million (around Rs.80 crore today) of fresh bad loans to its overseas loan book in the last six months. It has also restructured about $20 million worth of loans, said Hemant Contractor, SBI’s managing director in charge of international operations. Most such loans were given to hotels and resorts in countries such as Mauritius, he said.
The numbers may not be big in absolute terms, but they are significant. SBI’s total exposure to tourism is about $150 million.
“There has been a rise in the bad loans given to tourism segment since June. We have identified most of the cases and have taken necessary actions, including seeking legal recourse in some cases,” Contractor said.
He declined to divulge NPA figures as the lender is yet to announce its third quarter results.
But a senior SBI official, who declined to be named, said the bank’s gross NPAs in its overseas books must have spiked to 1.8% in the December quarter from about 1.4% in the year-ago period.
SBI’s net NPAs from international business rose to Rs.1,294 crore in the September quarter from Rs.948 crore in the year-ago period. It had an overseas loan book of Rs.1.25 trillion as of September.
Other public sector banks that have operations abroad such as BoB, BoI and Punjab National Bank (PNB), too, have witnessed overseas NPAs rising in the past one year.
BoB, which has an overseas loan book of about Rs.95,000 crore, saw its gross NPA ratio rising to 0.73% in the December quarter from 0.69% a year ago.
Cumulatively, the bank restructured 89 accounts in its overseas operations involving Rs.4,725 crore. Out of these accounts restructured in April-December, there were 20 involving a combined amount of Rs.1,069 crore.
In the case of BoI, another lender with significant overseas operations, bad debt rose sharply in the December quarter to Rs.14,140 crore from Rs.7,943 crore a year ago, making up 16.4% of the total bad loans. In the third quarter, the bank’s gross NPAs rose to 3.08% of its total loan book, from 2.74% a year ago.
“The major hit came in the September quarter because of a particular stressed account; this quarter the situation in the overseas accounts is better,” BoI’s executive director N. Seshadri said while announcing the third quarter earnings last week. He did not elaborate on it.
K.R. Kamath, chairman of PNB, said the bank is not too worried because it does not have significant exposure abroad. “There is some slowdown in the credit pick-up on the corporate loan book. But there is no major concern as we do not have major overseas exposure,” he said.
Slowing demand from consumers has also had an impact on SBI’s aggressive expansion plans in overseas retail banking. It is now going slow on its retail business and, instead, is focusing on high-yielding corporate loans. In 2009, SBI had chalked out strategies to expand its retail business in countries such as Singapore, the UK and Canada. But the plan is yet to take off and the bank is focusing on corporate banking linked to Indian companies and trade finance, Contactor said.
Contractor is still bullish on SBI’s overseas business, which currently contributes 14-15% of net profit. It plans to set up its sixth subsidiary in Botswana and a full-service branch in Tianjin in China.
SBI has five subsidiaries in Indonesia, Mauritius, Nepal, California and Canada.
“The movement on asset quality of Indian banks in their international books is a reflection of what is happening in the domestic market as most of the loans are given to Indian corporates,” said V. Sri Karthik, an analyst at Espirito Santo Securities India Pvt. Ltd.
The overall bad loan burden of the Indian banking industry has risen sharply in the past one year. Gross NPAs of 40 listed banks rose 46.85% to Rs.1.67 trillion in the September quarter from Rs.1.14 trillion in the year-ago period.
SBI had bad loans equivalent to 5.15% of the total loan book in September 2012. Central Bank of India (5.64% in December), UCO Bank (5.53% in December) and PNB (4.61% in December) are other lenders that have reported a significant rise in bad loans.
The banking industry is witnessing a sharp increase in restructured assets, which have reached about Rs.4 trillion, and analysts estimate that 25-30% of these loans may turn bad.
The growing current account risk
The record external gap will make it more difficult for the Reserve Bank of India to cut interest rates
First Published: Wed, Feb 06 2013. 11 30 AM IST
Banks no longer staying away from microlenders
What does the monetary easing mean?
Make up your mind—do you want more or fewer banks?
The only game left to play
Updated: Wed, Feb 06 2013. 03 36 PM IST
The current account deficit has emerged as the biggest risk for the Indian economy, replacing worries about an impending fiscal crisis.
India needs about $80 billion of foreign capital to fund its record current account gap, one reason why the government has gone out of its way to woo foreign investors since July. The recent series of meetings that finance minister P. Chidambaram had with global investors in Asia and Europe were an attempt to ensure that India does not trip into a balance of payments problem, when foreign exchange reserves will have to be put to work to defend the rupee.
The conference call that Reserve Bank of India governor D. Subbarao had with economists a day after the announcement of the monetary policy on 29 January offered further proof that the external situation is a major worry. Many of the questions dealt with it. Subbarao said in one of his answers that future interest rate cuts will not depend on the inflation trajectory alone. The size of the current account deficit will also be considered. That statement should temper some of the more unrealistic expectations of deep rate cuts in the coming months.
Meanwhile, former RBI governor Y.V. Reddy has put forth an intriguing idea in his forthcoming book on Indian economic policy, which was excerpted in Mint on Monday. Reddy argues that India should aim for a zero current account deficit over an economic cycle, so that India has the space to absorb shocks in bad years.
This contrasts with the traditional assumption among Indian policy makers that a current account deficit of around 2.5% of gross domestic product can be sustained. High-growth countries have good reason to run modest current account deficits, since they can invest more than they save.
The current account deficit is the excess of domestic investment over domestic savings. The only sustainable way to reduce this gap in the long run, without cutting back on investments, is to raise the savings rate. It is now well recognized that the savings rate—especially financial savings of the household sector—has been falling because returns have not kept pace with inflation.
Reddy argues that we need policies that are friendlier towards savers. The policy establishment understands this. What is less appreciated is that higher real interest rates are part of the answer.
So it is quite likely that the pace of interest rate cuts will be slower than the pace at which inflation comes down in the coming months (if it does at all).
Mumbai: December quarter earnings at Indian companies have left investors sceptical about the prospects of a turnaround as margins get squeezed and profit growth fails to match the increase in sales. Some of the bigger firms have performed dramatically worse than expected.
About 2,800 companies listed on BSE, excluding those engaged in oil and gas, banks, non-banking financial companies and software developers, posted a 2.92% rise in net profit, while sales expanded 4.68% in the quarter ended 31 December from the year-earlier period.
The sales increase is the lowest in at least six quarters; data older than that doesn’t cover newly listed companies.
“Corporate India is going through a painful period. Supply creation has been at a standstill and interest costs have been playing spoilsport,” said Nikhil Vora, managing director and head of research at IDFC Securities Ltd. “It will take them at least a couple of quarters to come out of the turmoil. A lot of action is required at the government, RBI (Reserve Bank of India) and even the private sector’s end. Cheap capital needs to be made available.”
Companies are hurting as India’s economy is expected to slow to a growth pace of 5% from 6.2% last year. RBI did cut interest rates recently for the first time in nine months to bolster the economy, but the central bank is constrained by the need to keep inflation within limits. Operating and net profit margins for the companies covered in this survey in the quarter just ended came in at 15.6% and 6.5%, respectively.
To be sure, profit grew during the quarter compared with a 15.35% decline in the year before. But this has been offset by other factors such as interest costs shooting up 19.7% to Rs.45,238.70 crore in the December quarter from the same period last year.
Companies that disappointed on the earnings front include Tata Motors Ltd, which said on Thursday that net profit dropped by half in the three months ended 31 December because of declining sales at home, the Jaguar Land Rover (JLR) unit’s reduced contribution and higher depreciation costs.
Still, analysts were optimistic about its longer-term prospects as JLR, which contributes more than 70% of Tata Motors’ revenue, was investing in new models and greater capacity to meet demand.
State Bank of India, the nation’s largest lender, also disappointed on Thursday, reporting its slowest profit growth in six quarters and missing analyst expectations after setting aside money to cover a rising tide of bad loans.
While the big private lenders have beaten or met market expectations, worries about the quality of assets weighed on the performance of state-owned banks.
To be sure, there was a change in trend for some sectors. Angel Broking Ltd said in a note that tier-I information technology (IT) firms posted better-than-expected revenue growth. Volumes were soft during the quarter, which is partly attributable to lower billing days, it said. “During 3QFY2013, overall results of large cap companies were better than midcap firms as factors such as demand pressures, limited pricing power, high client concentration and limited bench sizes restricted profits of mid-tier IT companies,” Angel Broking said.
“This is contrary to the trend seen in the past few quarters, when tier-II firms comprehensively outperformed their tier-I counterparts,” it added. Initial signs show that IT budgets for the calendar year 2013 are expected to remain flat.
Higher subsidy support from the government helped most state-run refiners post better quarterly earnings.
Analysts said policy and corporate action along with an improvement in macroeconomic indicators are needed over the next few quarters if earnings are to bounce back.
I have written about the debt trap India has been slowly getting into , and i wrote a detailed blog on 11th October 2012 . I was not surprised to read yesterday that, Ratings agency Crisil has sounded an alarm on the deteriorating health of corporate India. A third of the 11,500 companies it rates may not be in a position to service debt this fiscal as the Reserve Bank of India’s liquidity tightening to shore up the rupee stretches payment cycles, it said.
“RBI’s recent measures – capping the access of banks to systemic liquidity, and mandating a higher minimum daily cash reserve requirement – have halted the declining interest rate cycle and tightened systemic liquidity,” Crisil said in a statement.
“Stress will increase in sectors such as power, construction, engineering and steel, and lead to higher non-performing assets in the banking system,” said Roopa Kudva, managing director and chief executive officer of Crisil. “Credit quality of corporates is likely to be weakened by slow growth in GDP, heightened currency volatility, and higher-than-expected interest rates.”
RBI in the last two weeks has cut banks’ borrowings from it through the liquidity facility and raised penal rates of borrowing by 200 basis points. These moves have pushed up interest rates by as much as 300 bps on some instruments, leaving corporates reeling under financial strain.
The stage is set for numerous rating downgrades of companies where more than Rs 1.1 lakh crore of loans are due for restructuring this fiscal, says Crisil. This financial strain could worsen the banking sector’s plight by pushing up bad loans to 4% of total assets, from 3.3%.
The ratings firm has also scaled down its growth forecast for the economy from 5.5% to 5% this fiscal. In contrast with 2009, the global environment is much more stable today, and challenges for India’s economy are mainly domestic. Industrial growth plummeted to a 20-year low of 1% in 2012-13, growth in private demand slowed down to a 12-year low of 4%, and private corporate investment continues to be weak, said Crisil.
Following up on my article dated 11th October 2012, i was not shocked to read the news from Governor of RBI
July 04, 2013: The Reserve Bank today said the growing non-performing assets in the banking sector is a matter of concern and steps are being taken to bring it down as soon as possible.
“Together NPAs and restructured assets are increasing and are quite sizable. It is a matter of growing concern … The Reserve Bank and government have taken all action necessary to ensure that NPAs come down as soon as possible,” RBI Governor D Subbarao told reporters here.
Non-performing Assets (NPAs) of banks have been going up for the last two years due to slowdown in the economy.
The gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4 per cent of the total assets at the end of March, 2013.
Gross NPAs of PSU banks have risen from Rs 71,080 crore as on March 2011, to Rs 1.55 lakh crore as on December 2012.
Subbarao further said the Indian banks are well capitalised. “They would be able to withstand substantial shocks to the system,” he added.
After meeting chiefs of PSU banks, Finance Minister P Chidambaram yesterday said they have been asked to focus on their top 30 non-performing accounts and take action for recovery against the wilful defaulters.
“They are keeping a close watch on top 30 NPA accounts in each bank and action will be taken to recover especially when there is a case of wilful default,” he had said.